Confirmation bias--irrational despondency

Eric Weiner:

If the FDA regulated the media, it would require all stories about the economy to carry this warning: "Dizziness and pangs of existential angst may result. Do not read if you suffer from gloominess or are prone to bouts of anxiety. If you are near retirement age or work in the auto industry, consult with a physician before reading."

Yes, things out there are bad, really bad, and they're only going to get worse. Americans, we're told, are retrenching. We're eating out less, forsaking vacations and gift-giving and even that big New Year's Eve splurge, though we are apparently spending more -- lots more! -- on guns, booze and psychics. Crime rates are spiking, or soon will. We're hocking our jewelry and even our hair; we're donating our eggs; we're signing up as "lab rats." We're "ransacking our closets," as USA Today breathlessly put it, in hopes of finding something -- anything -- to sell on eBay.

All because of the recession.

I'm sure some of these stories are true, or true enough to satisfy an editor somewhere, but there's something else going on here: It's what psychologists call "confirmation bias." That's the human tendency to seek out only facts that fit what we already know to be true while downplaying or ignoring contradictory evidence. As Mark Twain is said to have quipped, "To a man with a hammer, everything looks like a nail." To a media covering a recession, everything looks like collateral damage. It's the flip side of irrational exuberance: irrational despondency.

No, I'm not blaming the media for the recession, but the fact is that news about the economy matters more than, say, news about the weather. A newspaper story about a hurricane doesn't alter the hurricane's path. But negative stories about the economy (even untrue ones) can erode consumer confidence, and two-thirds of our economy is driven by consumer spending.

A few years ago, Mark Doms of the Federal Reserve Bank of San Francisco and Norman Morin of the Board of Governors of the Federal Reserve System created an "R-word Index." They tracked how often key words and phrases, such as "recession" and "economic slowdown," appeared in the headlines or first paragraphs of news stories. They then compared the results with consumer confidence and found "a strong correlation between the newspaper-based indexes and various measures of consumer sentiment."

Their findings suggest that a sort of vicious cycle can take hold. The media reports bad economic news and gloomy forecasts. Consumers respond by hunkering down and closing their wallets. The media dutifully reports that consumers are hunkering down and closing their wallets, prompting consumers to hunker down even more, which the media reports. Consumers respond by . . . .

...

There is much more. I think this irrational despondency is more prevalent during Republican administrations than Democrat administrations. I think if you compared the stories under the Clinton administration to those under the Bush administration you could see the heavy Democrat bias when it comes to confirmation bias.

However, the economic results of the two administrations were not that different. Even when we were showing strong economic growth and job creation under the Bush administration the media tended to continue to portray the economic activity negatively.

As things turned downward because of the Democrat housing bubble, the media continued to exaggerate the problems. I think that within days of Obama's swearing in, they will be back in the happy days mode.